Sipping coffee at my usual place, I overheard someone saying a virus was running rampant in Wuhan. This was around the new year season in 2020. I was mapping my game plan for Singapore Real Estate, hoping to score some below market price deals.
I could hear how panicked they were and made a mental note to ask my clients from China how they were doing. That was that! I, like most people, could hardly imagine we were entering a new normal.
Thankfully, the property industry in Singapore held strong amid the pandemic. But much has evolved in these 2 years. The dynamic and prospects of Singapore real estate have changed.
Here, I will discuss how the global economy and trends have reset in these 2 years. Which businesses are likely to pick up in 2022. And which Singapore real estate holds the most promise in 2022.
In a snapshot, the content reveals:
How the economy has changed in the new normal?
Disruption in sector rotation
During a recession, it is usual to see certain defensive industries do well. While during boom market, other industries do better. But Covid has broken this circle of sector rotation. During the pandemic, some of the sectors have distorted to such an extent that they are disrupted permanently. They are not following the normal cycle anymore.
Broken supply chain
Another big constraint felt in businesses is their supply chain. In the US, the ports are manned by truck drivers. The supply chain was never fully digitized because the Workers Union protested against it to save their jobs.
When Covid hit, the drivers had no work. By the time the US was ready to reopen the ports, many drivers already moved on, abandoning their former job, causing massive port congestion.
Similarly, in the UK, Brexit caused many European drivers to leave the country. Hence, they suffered a shortage of labour to handle cargo amid the pandemic.
Similar circumstances unfolded in the property industry as well. Many borders closed to curb the pandemic across the globe. The developers could not receive supply on time to start construction. Hence, many project launches were delayed.
The pandemic pushed the supply chain uncertainty to such an extent that industries failed to deliver. Many retail sides died due to lack of supply. Prices went up, elevating inflation globally. Besides, the trade war between China and the US added fuel to an already grave economy. Thus, impacting higher inflation.
Trends and Statistics
Hybrid is the New-In for Work
Evolving to the new normal era, most businesses resorted to Work from Home (WFH). Researchers and global analysts see these trends in the after Covid era:
- According to Bloomberg, the US economy has a 5% increase in productivity due to the WFH boom. The findings suggest that the time saved in commute and adoption of new technology adds to the work time.
- The study further expects a rise of full workdays from home from 5% to 20% in the new normal.
- A Stanford Study on Chinese Workers reveal that WFH increase performance of staff by 13%. The staff experience better work satisfaction thus leading to less employee turnover.
- Another study by Stanford shows WFH increase working hours by 1% outside normal business hours.
Observing the changes themselves, many titular companies decided to adopt a mix of home and office working policies. We now know it as a hybrid working model. They believe such models can curb their costs and improve employee satisfaction.
- IBM recently announced that 80% of their employees will continue to WFH in the new normal.
- They are also planning to scale back their 70 million sq ft brick and mortar offices spread around 1,000 locations. Since there will be less employees spending time in the office, this will help them save millions of dollars.
- The Washington based software giant, Microsoft also announced hybrid model in October 2020. They would allow each employee to WFH 50% of their time.
- The Detroit based Ford Motor Company has also adopted a hybrid working model for their 30,000 employees from March, 2021.
- The same hybrid working is also embraced by Citibank, the third largest bank in the US as well as Google since March 2021.
Indoor Fitness & Entertainment is the Future
The world believes we have to live in this new normal amid Covid. This has highly hampered places that gerners crowd. Even now, when most of the world is open, going to clubs, bars, and concerts is not recommended. As such, the entertainment industry is focusing more on indoor entertainment to survive. Even fitness centres such as gyms, yoga centres, Zumba classes are resorting to virtual classes to stay afloat.
What do the trends mean for Singapore real estate?
Commercial real estate such as offices will be scaled down with WFH in force. The hybrid working model will lead the countries to deurbanize. Now, companies are allowing remote working. They are hiring people from all over, not focusing on big cities only as they did before. So, many people will lose the need to pile up in big cities. They will move to more spacious housing far away from the city central. Because there the living cost is lower and they can enjoy a higher quality of life.
Which businesses will pick up in 2022?
Following economic changes and evolving trends, the most promising businesses in 2022 are expected to be:
According to McKinsey & Company, 60% of consumers have changed shopping behavior due to the pandemic. This followed an increase in global online shopping by 10%. It is forecasted that online shopping will surpass a whopping $6.5 trillion by 2023. With the Asian market accounting for 51% of online sales.
Telemedicine’s future has permanently changed, thanks to Covid. While it always existed, most hospitals did not want to risk their services by opting for telemedicine.
10 years ago, Rock Health published its first report on digitized health venture investment. It highlighted an annual investment of $1.1 billion in this emerging sector. But today, between quarters one to three of 2021, the total funding has amounted to $21.3 billion. It is spread across 541 deals with an average deal size of $39.4 million. Why such a massive change in telemedicine?
Because, during Covid, patients’ admission dropped. People could not visit hospitals as easily as before. Thus, taking treatments or buying medicines became a challenge. People started seeking online counsel more and more. Thus, hot money is pouring into the telemedicine sector to cater to this newfound demand making it one of the most promising businesses in 2022.
Digitized payment service providers
Before the pandemic outbreak as well, fintech was rising. Easier payment makes for faster purchases and sales cycles. And today, if businesses do not adapt to the digital process, they risk getting phased out. It’s a do-or-die situation.
Look at Goldman Sachs! The bank was already ahead in its digital footprint. So, they were affected relatively much less than other banks in the pandemic. So, if businesses want to see growth, they have no option but to go digital.
Cloud computing and AI
The surge in online shopping has not only benefitted e-commerce businesses but cloud-based services as well. Both small and large merchants seek analytical encryption and secured data storage today. We are becoming increasingly reliant on tech giants like Amazon as well. Thus, boosting the cloud services further.
With them, AI services provided by Google, YouTube and Facebook are also playing an integral part in the future of consumer buying. They have the benefit of upfront investment and first mover’s advantage. This in turn is creating a natural monopoly environment. This sector will boom in 2022 because now, AI and cloud services have become a necessary key to operating businesses worldwide.
Which Singapore real estate sector will do well in 2022?
Analyzing the economic changes, trends and the high-demand business sectors, these property areas foresee a bull run in 2022.
Singapore has become a prime destination for tech giants. With more and more global tech companies like TikTok setting their regional offices here, expect offices to be the host for the crown jewel of the tech industry in 2022
Residential segment for the mass market
With deurbanization in force, people no longer feel the need to live in small apartments in big cities. Besides, WFH requires bigger space for employees to work in the comfort of their homes. Therefore, Singapore residential property can expect a rise in spacious large houses in RCR and OCR in the coming year.
Luxury residential properties
There is a super high demand for premium luxury units in Singapore’s prime districts. Especially among ultra high net worths as they want to buy big houses in posh areas. Apartments above 3,000 sq. ft. in prime districts are most sought after now. In Aug 2021, a 4-bed unit in Ardmore Park was sold at S$10.8 million. Another GCB in Ewart Park with over 32,000 sq. ft. was leased at S$100,000 a month.
With the borders reopening, Singapore expects more wealthy foreign buyers to crowd the luxury property market to get their hands on elegant houses. Thus, 2022 will see more of these buyers with an interest in luxury properties.
Posh F&Bs and Takeaway Hubs
In 2021, 180 restaurants shut down their business in Singapore, unable to revive from the pandemic attack. But amid the dwindling F&B scene in the lockdown, establishments such as Dumpling Darlings’, Curry Boom Boom and Porkypine are evolving and growing.
Dine-in is still a luxury people crave and can afford. People want to enjoy the taste of food, be pampered by eloquent serving and engage in social gatherings in a nice restaurant. So, as long as F&Bs serve customers in an aesthetic dining environment, their business will see a rise.
Then there are Macdonald’s and Dominoes which upped their take away services to survive the pandemic. Another breakthrough name is Ding Tai Feng. They are offering frozen meals. Every item from noodles to dumplings comes with easy-to-cook instructions to enjoy for takeaway and home delivery.
With these 2 F&B models, high-end restaurants and take away F&B properties will rise in demand in 2022.
With so many takeaway stores and a rise in delivery services, several cloud kitchens have opened in Singapore since 2020. One mentionable name is the 13,000 sq. ft. facility by Smart City Kitchens in Tampines. Deliveroo opened 3 cloud kitchens and Foodpanda opened 2, which will launch soon. Therefore, industrial properties for food preparation are expected to see a big rise in the coming year.
Commercial shops and shophouses
Shophouses have always been a crowned attraction for foreign buyers for their unique and rare appeal. In the coming year, shophouses and shops with easy access will see rising demand. Mostly because people will want to avoid shopping malls to steer away from crowds. So, roadside shophouses with available car parks promise worthy investment.
The location or demographic of shophouses is another key factor that is steering high demand. Shophouses surrounded by residential areas and mix crowds with hospitals, offices and schools are hard to find. Its uniqueness and prospect of the rich demography ensuring high return in the future makes it a hot property sector for 2022.
Commercial B1 industrial properties and warehouses
With online shopping now taking a bigger slice in retail, demand for storage and warehouses will increase. Where retail shops are closing, more and more warehouses, data centres and logistic hubs will open to cater to online businesses.
Watch out for new cooling measures!
On Dec 15, 2021, a new set of cooling measures was introduced. This has come into effect after private residential housing prices in Singapore crossed a record high. For 6 consecutive months, the prices have increased. From 2020Q2 to 2021Q3, prices have increased by 9%.
The new cooling measures have come in 3 forms to balance Singapore real estate:
- Additional Buyer’s Stamp Duty (ABSD) has increased.
- Total Debt Servicing Ratio (TDSR) has been tightened.
- HDB loan limits have been lowered.
Applicable for all residential property transactions where Option to Purchase (OTP) was granted or exercised on or after Dec 16, 2021.
- For entities including developers, ABSD is increased from 30% (25% remissible + 5% non-remissible) to 40% (35% remissible + 5% non-remissible).
- For citizens:
- First home buyers’ ABSD is NOT affected.
- Second home buyers’ ABSD have risen from 12% to 17%.
- Third and subsequent home buyers have risen from 15% to 25%.
- For Permanent residents (PRs):
- First home buyers’ ABSD remains unchanged at 5%.
- Second home buyers’ ABSD have risen from 15% to 25%.
- Third and subsequent home buyers have risen from 15% to 30%.
- For Foreigners, ABSD has risen from 20% to 30%.
Applicable for mortgages granted or refinanced on or after Dec 16, 2021.
Buyers whose OTP has been granted on or before Dec 15, 2021, can continue their loan at a 60% threshold even if they don’t exercise the OTP at that point.
TDSR threshold is tightened from 60% to 55%. This means now, the total monthly loan repayments of borrowers cannot exceed 55% of their monthly income.
HDB Loan Limit:
- New HDB flat buyers in HDB’s sales exercise launched on or after Dec 16, 2021.
- Resale flat buyers whose completed application is received by HDB on or after Dec 16, 2021. A complete application entails both seller’s and buyer’s portion of resale application.
HDB loan limit has lowered from 90% to 85% of the property’s purchase price.
If buyers take out loans from financial institutions instead of HDB, the loan limit will remain at 75% of the house’s purchase price.
The cooling measures concerning ABSD ensure that speculators and flip buyers are discouraged from buying Singapore real estate. This would help to balance the price of the houses. Because rapid price hikes may make properties unaffordable for genuine buyers.
TDSR and HDB loan limits focus more on the buyer’s capacity to pay loans. TDSR is increased so that only buyers who have the ability to pay to opt to buy properties. This would reduce loan defaults to banks.
On the other hand, the HDB loan limit is lowered. This means buyers have to pay more upfront deposit to buy an HDB flat. This ensures only strong buyer contenders can buy properties that can afford to pay loans forward without default.
What makes property buying AVERAGE to EXCELLENT?
A good advisor!
Singapore real estate is flooded with prospective properties. But finding a unique deal that maximizes your investment is hard to find.
During Covid, I helped my clients to pick up profitable deals and buy freehold F&B that has a good demographic of residential houses, offices, schools and hospitals. Contact me if you like me to share with you where the locations are as I am still looking to acquire more such deals for my clients
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